Wound care isn't a sector most investors think about, but flogging high-tech dressings, wound-closure devices and surgical sutures has quietly turned into a fantastic business for £645m market cap Advanced Medical Solutions (LSE: AMS). The company's sales have been skyrocketing in recent years as cash-strapped NHS Trusts and overseas hospitals alike have taken a shine to AMS' products that offer market-beating quality as well as market-beating pricing.
In the half year to June alone, the company's sales rose 8% year-on-year (y/y) in constant currency terms and 17% at actual exchange rates, to £45.9m. This growth was led by the company's in-house designs, which grew by 15% y/y in constant currency terms, to £27.3m. This rapid increase in sales illustrates just how attractive AMS' quality and value proposition is to customers and there's good reason to believe this level of growth can be sustained for quite some time.
The key is the group's rapid expansion into the US, which is the world's largest medical market by value by some degree. Constant currency sales Stateside in H1 rose 32% to £9.1m as the company's market share rose from 19% to 24%.
And unlike many AIM listed medical companies, AMS is both growing quickly and is already highly profitable. In H1, pre-tax profits rose 27% to £11.4m and operations generated £9.1m of cash flow. This increased the company's cash reserves to £55.2m and supported a 17% hike in interim dividend payouts to 0.35p.
Now, AMS' shares are highly priced at 33 times forward earnings but with large addressable markets, enviable margins and cash flow, plus a very healthy balance sheet, I still reckon the company and its stock have very attractive growth potential.
Everyone needs energy
Another fast rising growth share I've got my eye on is independent energy supplier Yu Group (LSE: YU), whose shares are up in value over 14% this morning following H1 results. The group supplies electricity and gas to commercial customers and differentiates itself from competitors by having high levels of customer service, including individual account managers and entirely UK-based call centre agents.
So far, corporate customers have responded very well to this proposition, which was clear in the half year to June as revenue rocketed from £5m to £20.7m y/y. This rapid level of growth came from the company landing larger corporate customers as well using third party brokers in addition to its in-house sales staff.
The cost of third party brokers did dent profitability in the period with gross margins falling from 21% to 17.7% y/y. However, the company is still in very good shape and finally cash flow positive, with operations kicking off £1m in cash during the period. This kept the group's cash balance level at £5.9m, which is critical as it needs cash on hand to serve as collateral when hedging its energy purchases.
Looking ahead, growth over the next few quarters looks to be very good. Given H1 revenue and booked revenue for H2, management expects at least £39m in revenue for 2017 as a whole and has already contracted £23.2m for 2018. Much of this growth is already baked into the company's valuation of 18 times 2018 forecast earnings, but I still see plenty to like about this founder-led business over the long term.
But if Yu Group is simply too highly valued for your tastes, then I recommend reading the Motley Fool's free report on one Top Small Cap trading at just eight times earnings. This value investor favourite also comes with great growth pedigree as it has increased earnings by double-digits four years in a row.
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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Advanced Medical Solutions. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.